The SPX, DJIA and COMPQ formed a triple bottom as the narrow trading range of the past five days continued for a sixth day. The SPX, INDU and RUT closed slightly higher, while the COMPQ closed slightly lower.

11:00 am ET - last night in my AT webcast I put on a subjectively based bearish virtual trade on the SPY...if you were there you may remember that I said to do this trade required ignoring the intermediate sideways trend that was at support, the 5 day trend that was neutral and the 1,040 support level that has been a pivotal area of resistance and support since October 2008...I placed a virtual trade on the SPY to buy the Sep 106 put if the SPY traded below 104.90...I placed the initial stop at 107.41...I said that if the SPY found support in the 104 to 104.50 area and began to reverse that I would tighten the stop since the subjectively based bearishness was not becoming reality....the original buy order was filled at 9:31:00 for 2.57 per contract...at 9:48:47 I moved the stop from 107.41 to 105.55 which was Monday's 105.30 close plus 25 cents...that stop was filled at 10:03:44 for 2.18...I stated last night that I did not like this trade because it was not an objective view of the market and was based on the assumption that a trader was subjectively convinced that the market was going to break support and go lower, but that I wanted to demonstrate how to do a counter trend trade in an intelligent manner...this morning the SPX appears to have made a triple bottom...I also pointed out last night that if Tuesday followed the pattern of the last 5 trading days that Tuesday would be an up day...while it is too early to know how the day will finish right now the SPX is up 2 points after falling to a low of 1,040.88...

After a strong up day on Friday the ES futures opened Sunday evening and moved higher reaching 1,072 late Sunday night. The ES sold off to 1,060 by the 9:30 ET open and then rallied three points to 1,063.

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The cash SPX opened at 1,062.90 down just over two points from Friday’s close. From there the SPX trended down all day long in a series of six intraday bear flags closing at 1,048 at the 61.8% Fib retracement from Friday’s low.

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Guidance:

SPX

Resistance: 1,056, 1,071, 1,086

Support: 1,041, 1030, 101

1,041 has been a strong support area for a year and was resistance in October 2008. Buyers have been at this level all but one time this year and this level still favors a potential bounce. Stay prepared to trade in both directions.

Look to enter bullish trades when a new bounce off support and a break above the high of the low day occurs.

Enter bearish setups with a new bounce down from resistance, bounce down from the 30 DMA or break of support

The VIX rose +2.76 to 27.21 moving above the benchmark 25 level and increasing the potential for a break of support.

The short term 3 day trend is neutral.The three-month trend is neutral.The twelve-month trend is up.

Continue to focus on and trade setups on the charts of the stocks you watch. Trade with the trend of the chart and follow your rules

The SPX returned to the 1,040 support area Friday morning during the first 30 minutes of trading where buyers stepped in and took over just like they did on Wednesday. A rally ensued to the 1,061 resistance area from Thursday morning where a bull flag was formed pulling back to the 1,055 area. Buyers took control at 1,055 and broke through the 1,061 resistance with an SPX close at 1,064. You can view this in the five day chart below.

The good news for those who took long positions on the support bounce on Friday is the 1,061 breakout gives a short term SPX price target of 1,082.

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All four of the broad indexes formed bullish candle patterns on the daily chart. The SPX confirmed Wednesday’s hammer. A confirmation of a hammer at support is a bullish support bounce entry signal. The RUT was the strongest of the four indexes on both Thursday and Friday. The RUTdid not pull back as far on Thursday and moved higher on Friday relative to Wednesday and Thursday’s high. The chart below shows both the daily and weekly on the SPX and RUT. The RUT had the smallest percentage loss on Thursday and largest gain on Friday.

This week the media was at least partially obsessed with something called the Hindenburg Omen. This was just classic look for something that projects the negativity of the recent weeks into future. This omen is just another example of how some people can’t resist the drive to see the future. The latest doom and gloom is not-with-standing a bullish MACD histogram divergence on the SPX chart. This is the same divergence that appeared at the low in July 2009, February and May 2010.

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Stop trying to predict the future and focus on Trend, Support and Resistance and Momentum.

The SPX's support bounce that started on Wednesday ran into resistance at 1,061 after the first hour of trading and the index trended down for the rest of the day reaching a low of 1.045.40 before a small rally during the last hour of trading.

The SPX fell to 1,039.83, a similar support low to May 25, where buyers took control and created an intraday reversal moving to the SPX up 20 points from its low before closing at1,055.33. This was the SPX’s first up day since last Wednesday. The COMPQ and RUT formed bullish engulfing patterns.

Guidance:Watch for support bounce continuation to continue on Thursday and trade setups according to your rules.Adjust stops on bearish trades for a potential exit if they bounce above the high of the low day according to your rules.

Trade with the trend of the chart and follow your rules.

SPXResistance: 1,071, 1,086, 1,100, 1,115Support: 1,056, 1,041

The short term 3 day trend is down.The two-month trend is neutral.The twelve-month trend is up.

The SPX moved below Monday’s low before buyers took over at 1,063 on expiration Friday and rallied the SPX to close at its 1,071 support area. The SPX was down just 7 points from last Friday’s close.

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As I said in the Weekly Wrap on Friday, the lack of selling conviction to the downside despite plenty of economic reasons for the market to go down big, suggests that sellers are limited at these price levels. Big money is apparently still viewing a stronger economic environment six to nine months in the future.

Additionally the VIX did NOT confirm the SPX’s lower close on Friday.

On the daily chart the SPX formed a hammer and on its weekly chart it formed an inverted hammer, both bullish candle patterns. The SPX and many individual stocks are in a sideways trend, trading range or non-trending consolidation and at support on Friday.

The question is what move is most probable in a sideways trend with price at support?The most probable development is a price bounce at support in a sideways trend.

CRM and INTU broke through horizontal resistance on Friday after reporting earnings and NTES which broke through resistance on Thursday also following earnings continued higher. MRVL also broke through short resistance after earnings but it formed a trend reversal rather than a new high. AKAM broke through horizontal resistance on above average volume joining CRM, INTU and NTES making new highs.

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Bullish Engulfing - RVBD, CMG and HSY all formed bullish engulfing patterns on a support bounce and NFLX confirmed Thursday’s piercing line pattern.

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Piercing Line Patterns - BIDU, DECK, AGU and MOS formed piercing line patterns, each in bull flag support bounce. Look for confirmation on Monday.

Friday’s trading found support and formed a bullish hammer and a bullish inverted hammer on the weekly chart. There is a MACD bullish divergence in the MACD Histogram on the daily chart. Look for confirmation of the hammer and support bounce on Monday. If support does not hold look for the SPX to move to the next support level of 1,056.

Look to enter bullish trades when a new bounce off support and a break above the high of the low day or a breakout above horizontal resistance occurs. This could occur on Monday and occurred for some stocks on Friday.

Adjust stops on bearish trades for a potential exit if they bounce above the high of the low day. Enter bearish setups with a new bounce down from resistance or break of support

The VIX fell -0.95 to 25.49 holding above the benchmark 25 level.

The short term 3 day trend is down.The two-month trend is neutral.The twelve-month trend is up.

Continue to focus on and trade setups on the charts of the stocks you watch. Trade with the trend of the chart and follow your rules.

The SPX broke the low of the high day after the jobs claims report was higher than expected. A few stocks like NFLX and PCLN rose. NTES rose after a strong earnings report Decliners led Advancers 4.4 to 1 on the NYSE.

The SPX fell to its 1,071 support level Thursday when buyers stepped in causing a support bounce to its close at 1,075. Remember if support breaks, the index is likely to fall to its next support level at 1,056.

The SPX opened higher reaching an intraday high of 1,100, the next resistance level and then pulled back the last two hours of trading closing at 1,092. Tuesday’s action did confirm Friday’s inside day as a reversal day. Tuesday did break the high of the low day. Twenty six stocks in our watch list and the NDX 100 gave support bounce or bull flag entry signal while ten closed above their 30 DMA with no stocks made a new close below their 30 DMA.

The SPX opened lower made a lower low at 1,069 and then rallied to close fractionally higher at 1,079.38 forming a hammer pattern. Monday’s action did NOT confirm Friday’s inside day as a potential reversal day. So traders will wait for Tuesday to look for a break of a high of the low day.

INDU = dojiSPX = hammerCOMPQ = piercing line

NFLX, LVS, CHL, CAM, VMW, POT, CTXS and IPI moved higher.

PCLN, MOS, AKAM, AGU and GR while pulled back from Friday’s close.

CAT, CLF, DE, GME, GMCR, HLF, NTES, RVBD, VOD, MICC, QCOM, BIDU, JOYG gave support bounce entry signals on Monday with a break above the high of the low day.

The SPX opened lower and cycled up and down in a narrow range between 1,079 and 1,086, finally finishing Friday at the low end of the range at 1,079.25. The three major indexes formed an inside day which are a potential reversal day.

The SPX opened lower and made its low of the day during the first 10 minutes of trading and moved 10 points higher before closing at 1,083. Today is a new low day with a higher close than open and a potential reversal day. Watch for a break above the high of the low day on Friday.

NFLX continued to move higher with a horizontal breakout. Its new breakout chart target is 160 with within 3 to 8 weeks.

LVS, PCLN, CHL, AKAM, POT, MOS, AGU and IPI gave bull flag entry signals on Thursday with a break above the high of the low day.

Dave Johnson, CMT

David Johnson, CMT
Investment professional for 40 years including analyst, portfolio manager, trader and trading instructor. Performing computer based technical analysis since 1990. Previously quantitative and fundamental analysis. Has trained more than 40,000 traders in over 250 events including two and four day training events.
Email: chartsignals@yahoo.com